A Probabilistic Balancing Rule model is presented and shown to be effective in the prescription of real-time (daily) operations for a multi-purpose surface water reservoir system. In this implementation, a reservoir used competitively for hydropower production, water supply and flood damage mitigation is assumed. The proposed model defines a set of optimal operating decisions as those that minimize the maximum non-exceedance probability level, corresponding to the respective decisions, over a given forecast horizon. In contrast, for a penalty-based model or a model which admits and uses economic criteria, the optimal decisions are those which minimize the total assessed penalty (losses), for non-ideal operations, within a specified forecast horizon. The use of penalty-based rules or economic criteria is shown to lead to myopic decisions under certain circumstances. The effectiveness of the Probabilistic Balancing Rule model is demonstrated by comparing the optimal decisions prescribed by it with those determined via a penalty-based model.